With new bargain pipeline tolls, Ontario’s Dawn hub is wide open for western gas

In an area rich in memories of fulfilled hope, Dawn stands out as a station on a path back to prosperity for Alberta. The site juts up from pancake-flat Ontario farmland 300 kilometres southwest of Toronto.

Dawn began as a destination for black freedom-seekers on the 19th-century Underground Railroad. Where fugitive slaves homesteaded with help from British and Canadian abolitionists, the control centre of a subterranean energy web now pops into view beside a rural road as a cluster of sky-blue pipes and valves.

This spring and summer the site hummed with the construction of the latest capacity addition by Union Gas, a subsidiary of Calgary-based Enbridge since its 2016 purchase of Spectra Energy for $37 billion.

The Ontario part of the takeover stars the Dawn natural gas storage and trading hub for suppliers and buyers across North America. The acquisition is a growth asset.

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Over the past three years, Union has poured $1.5 billion into system expansions. Counting parallel additions to TransCanada’s pipeline network, $3.4 billion has been invested since 2014 in raising Ontario daily delivery capacity by 19 per cent to 7.5 bcf of gas—an energy river equivalent to 1.25 million barrels of oil.

At Union headquarters in Chatham-Kent, Ont., Libby Passmore, manager of strategic sales, and Lydia Gazidis, an associate, offer a portfolio of services to marketers. The Union system features 16 connections to gas pipelines with 9.9 million customers in Ontario, Quebec and the northeastern U.S. The new additions raise further possibilities for extending Canadian gas merchants’ reach into Michigan.

For Calgary-based suppliers of Alberta and B.C. gas, fresh action is scheduled for this fall. TransCanada sets November 1 as the target date to start up a gas counterpart to the Underground Railroad: a 46 per cent cut in tolls to reach Dawn on its cross-country Mainline, now awaiting approval by the National Energy Board (NEB).

From an Alberta public interest point of view, the forthcoming attempt to revive eastern gas sales matters as much as the higher profile crusade to triple oilsands export capacity to 890,000 bbls/d on Trans Mountain Pipeline from Edmonton to Vancouver.

Gas, not oil, freed the Alberta government from its 1980s and ’90s episode of enslavement to lenders, in deficit and debt bondage that prompted sorely remembered service and job cuts.

Gas royalties ended the pain by totalling $52 billion in 2000-08 as Alberta’s top source of government revenue. The bonanza has shriveled since by dropping 94 per cent off its peak annual performance of $8.3 billion in 2005 to $455 million predicted by the current provincial budget.

Despite steeply rising prices and production volumes during the fat years for oil, limited net-profit bitumen royalties for 2000-08 were $11.4 billion, or little more than one-fifth the gas contribution. The oilsands regime remains more dedicated to encouraging development by recognizing high project costs than to grabbing maximum government revenues.

The eastern gas trade succumbed to disruptive technology and markets. Since 2008 prices and sales volumes ran aground on surpluses owed to the U.S. “shale gale” of proliferating production by horizontal drilling and hydraulic fracturing, surging American exports and rising TransCanada tolls.

NEB records show that by 2015 average traffic on the western half of the cross-country Mainline fell to three bcf/d, or just 43 per cent of its capacity of 6.9 bcf/d. The eastern leg average shrank even more to two bcf/d, or 38 per cent of the space for 5.2 billion bcf/d.

“Need” and “urgency” inspired a 23-name who’s-who in Canadian natural gas to line up for the spring sale of bargain-toll delivery capacity to Dawn, says TransCanada’s application for NEB approval of the new service.

An eastern trade barometer registers demand growth. In 2016 physical gas transactions at Dawn nudged 194 bcf, up 18 per cent from 165 bcf the year before. Activity at Alberta’s AECO trading hub, while still bigger at 319 bcf in 2016, was down by eight per cent from 347 bcf in 2015.